UPDATE 2-US sees net overall capital outflow in June

(Adds details, comment)

By Steven C. Johnson

NEW YORK, Aug 16 (BestGrowthStock) – The United States recorded a
net capital outflow in June for the first time in five months,
the Treasury Department said on Monday, and China trimmed its
holdings of U.S. government bonds for a second straight month.

Overseas investors unloaded a net $6.7 billion in U.S.
securities in June, including short-term instruments such as
Treasury bills. In May, they were buyers to the tune of $17.1
billion.

Overseas appetite for long-term U.S. securities was
healthier in June. Foreigners bought a net $44.4 billion in
June compared with $35.3 billion in May.

Most of that money went into Treasury notes and bonds,
which registered a net inflow of $33.2 billion, up about $18.3
billion from May. U.S. agency debt purchases fell by a $9.2
billion while overseas investors were net sellers of both U.S.
corporate debt and equities for a second straight month.

The data “indicates a general lack of interest in buying
anything but longer-term U.S. government bonds,” said Michael
Woolfolk, senior currency strategist at BNY Mellon.” All in
all, not the most supportive environment for the greenback.”

Japan, the second-largest holder of Treasuries, increased
its holdings by $16.9 billion to $803.6 billion. But No. 1
Treasury holder China trimmed its holdings by $24 billion to
$843.7 billion, marking the second straight monthly reduction.

A Chinese government economist said last week that Beijing
was buying record amounts of Japanese debt because it considers
it less risky than the U.S. variant. [ID:nTOE67A03B]

“This carries on our theme that China continues to sell
U.S. Treasuries and buy Japanese and European fixed income as
it diversifies its reserves,” said Douglas Borthwick, managing
director at Faros Trading in Stamford, Connecticut.

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Graphic on foreign holders of U.S. Treasuries:

http://link.reuters.com/nyh35n

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As the biggest single buyer of Treasuries, China provides
an important source of financing for the U.S. current account
deficit. Its purchases also keep the value of its yuan currency
from appreciating too quickly against the dollar.

Chinese authorities earlier this year signaled they would
allow more flexibility in the dollar-yuan exchange rate, which
could reduce Chinese demand for Treasuries.

“We expect this trend to continue now that China has a
‘flexible’ yuan and we read the data as U.S. dollar-negative
going forward,” Borthwick said.
(Reporting by Steven C. Johnson; Editing by Andrea Ricci and
Dan Grebler)

UPDATE 2-US sees net overall capital outflow in June